Mumbai: In a significant ruling that balances insolvency laws with the protection of vulnerable citizens, the Bombay High Court has upheld the Slum Rehabilitation Authority’s (SRA) power to remove a defaulting developer, despite the developer’s approved insolvency resolution plan.
The court underscored that the Insolvency and Bankruptcy Code (IBC) cannot shield developers from their statutory obligations under welfare legislation like the Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971.
The case stemmed from Anudan Properties Private Ltd. failure to complete a slum rehabilitation project in Thane and its consistent default on transit rent payments to members of Rajmudra Co-operative Housing Society Limited.
The developer, facing financial distress, underwent insolvency proceedings, resulting in an approved resolution plan under the IBC. However, the SRA terminated Anudan’s appointment, citing its non-performance and the severe hardship inflicted on slum dwellers. The developer challenged this before the HC.
Justice Amit Borkar, in a detailed 71-page-judgment, emphasised that the SRA’s action was a regulatory measure in the public interest, aimed at ensuring the timely rehabilitation of slum dwellers, rather than a mere debt recovery mechanism. The judge reasoned that while the IBC addresses debt resolution, the Slum Act focuses on the social and physical rehabilitation of vulnerable citizens.
“The principle of public interest penetrates insolvency law,” the court stated, highlighting the necessity to reconcile the objectives of both statutes. The court acknowledged that the IBC provides an overriding effect, but it clarified that the Slum Act’s mandate to ensure timely rehabilitation is not inconsistent with the IBC’s objectives.
The court noted that the slum dwellers’ primary grievance was the developer’s failure to construct and hand over rehabilitation units and pay transit rent. It asserted that the SRA’s action to replace the defaulting developer was a necessary regulatory response, not a private remedy for monetary loss.
Furthermore, the court addressed the issue of unpaid transit rent, deeming it a statutory obligation, not a gratuity. The developer’s failure to provide this support left many families shelterless, contradicting the spirit of slum rehabilitation policies, the court noted.
While acknowledging the developer’s revival under the IBC, the court stressed that the project’s public interest dimension, involving the housing rights of slum dwellers, must take precedence.
The court directed the SRA to provide Anudan with a final opportunity to present a concrete plan to address the slum dwellers’ grievances, including a timeline for completion, payment of arrears, and compensation for past losses. If Anudan fails to provide a satisfactory plan, the SRA is authorised to proceed with appointing a new developer.
The court also directed the SRA to consider imposing conditions on the new developer to mitigate the hardship caused by past delays. The court rejected a request for a stay on the judgment.
